Profit for a purpose and not greed
When Elisabeth Murdoch gave a lecture at a British media event in August criticising the way that her family’s News Corporation organisation has been run, it nicely illustrated a generational shift in attitude.
The focus of her ire was the culture at her father Rupert’s firms, particularly the newspapers that have been engulfed in a phone-hacking crisis, which she suggested was motivated by greed, or “profit without purpose”, as she put it. She talked about “moral language”, something she implied was missing from her family’s empire. Good performance, she implied, was not to be evaluated with reference only to the bottom line, but ethics.
Ms Murdoch is not alone in looking for a new definition of performance. Penny Webb, who runs family business consultancy Familias & Co, says that next generations increasingly talk about success in a wider context than cold, hard cash. “In the past, performance was measured in terms of profit and growth,” says Ms Webb, “and now we see it measured in contribution to social capital, in terms of philanthropy and charitable giving.”
Forward-looking family businesses are making sure social performance is aligned to business performance
When deciding whether to join the family business they look at different things than their parents did. “They have different criteria for joining a firm,” she says. “This generation put social responsibility and ethics as one of the top three criteria for joining a firm. People want to belong to businesses that reflect their values.”
The most forward-looking family businesses are, Ms Webb says, “extending the meaning of performance, making sure that social performance is aligned to business performance, which is aligned to your individual values as a family”. She says she’s “seen frustration in some next gens, who think their parents pay lip-service to social good, but by and large the future is going to belong to these people and they have a much more integrated idea of what performance means, a more aligned view”. Ms Webb is writing a book examining how religious faith informs many businesses around the world, something which she thinks is becoming more common.
One spectacular example where a next generation changed the parameters of performance is Vestergaard Frandsen, a Danish maker of suit linings until the third-generation Mikkel developed an interest in Africa and, while still in his 20s, started manufacturing insecticidal tents for refugees. It also makes the LifeStraw, a drinking tube that filters out impurities in water. The company recently developed a scheme funded by carbon credits to distribute 900,000 free LifeStraws in Kenya. It estimates that 400,000 children’s lives will be saved by two million mosquito nets it distributed in Niger in 2006. And it is now 20 times larger than when it was making linings.
Edouard Thijssen, 25, a fifth-generation member of the Belgian family behind the Aliaxis plastics business, says the next generation needs to decide “what would good performance be over the next 20 or 30 years”. He adds: “The performance metrics for businesses are relatively straightforward. I think what’s key is for every new generation to define their long-term performance metrics and vision – Why are we together? What do we want to do together? How will we get there? – and I think that there is maybe quite a big difference between our generation and previous generations.”
That involves integrating philanthropy into the business, he says. “In the previous generations, there were business leaders who worked very hard into their 40s and 50s, and then retired and started doing philanthropy. My generation, who are at the start of their careers, want to integrate social concepts and responsibility in what we are doing right from the beginning.”
Technology and ethics are intertwined, says Joachim Schwass, a family business expert at Swiss business school IMD. “Growing up in the interconnected world, and seeing more inequality and what’s going on out there has made the younger generation more cynical in regards to business,” he says. “I think that younger people in general are more averse to the idea of maximising profit, which sounds too much like greed.”
Yet Mr Schwass also thinks that next gens are tougher than the senior generation, when it comes to measuring performance. “They want everybody to be more accountable and to be more quantitatively oriented. They have done their MBAs and business education can be incredibly quantifying, whereas the post-war generation did not have that education and was more practically oriented.”
He cites the Ayala Corporation, a 175-year-old family conglomerate from the Philippines. In 1997 the sixth-generation brothers decided to improve access to drinking water in Manila, despite resistance from the older generation, and in 1997 set up a business called Manila Water. Back then only 29 per cent of the six million population in its area of operation had water 24 hours a day; now 99 per cent do. Leakage has been reduced from 67 per cent to 11 per cent. And revenues were £179 million last year.
Even businesses where social good has always been important are integrating it further. Rose Damen, a 27-year-old, third-generation member of the Dutch shipbuilding firm Damen, says the business has always invested in the African and Asian countries where it operates, and funds a Dutch modern dance company. But now environmental concerns are also taking centre stage. “My father was a bit sceptical about the green issue, but we as children, particularly my older brother, who is 42 and on the executive board, have been big cheerleaders about it,” she says. “We built a hybrid tug-boat – and my brother is one of the people who really supported that. We have actually always been pretty green, but he has helped us come up with new standards and has really pushed that side of things.” Ms Damen doesn’t know whether her future lies in the firm but, if she does stay, you can bet that things will change.
“I want to be able to look back in 40 years’ time and think that I contributed something,” she says. “To feel happy in my work and to perform, I would have to feel good about it.” Profit, it seems, is no longer enough.